POVERTY REDUCTION STRATEGY TN

government buildings, the capital cost increases to Rs. 230 crore. The additional
recurring cost that would be incurred in these facilities is about Rs. 20 crore each year.
b. Reforming Subsidies and Transfers
The desirability of subsidies arises primarily because of the associated positive
externalities in the public provision of the concerned goods and services. Two important
cases are health and education. Equity requires that the benefits of the subsidies should
accrue primarily to the relatively deprived sections of the society, which in some contexts
are the low income groups, and women or female children. The case becomes stronger
when concerns about low incomes and gender are present simultaneously. In Tamil
Nadu, direct subsidies were the third fastest growing revenue expenditure, next to
pension and interest expenditure. The largest subsidy went to food (of which the rice
subsidy accounts for 90 percent) distributed through the public distribution system, PDS.
c. Reforming Public Sector Units
State Level Public Enterprises continue to require financial support. State transport units,
with about 120,000 employees have large accumulated losses. There are 18 cooperative
spinning mills and 16 cooperative sugar mills, employing 20,000 people, which account
for major financial losses incurred by the cooperative sector. There are also nine public
Statutory Boards formed under independent legislative Acts, spanning from electricity to
maritime transport to pollution control. The TNEB, accounting for 80 percent of
employment of the nine Statutory Boards, has not been restructured yet.
d. Gender Focus through Budgets
Like the central government, in the Tamil Nadu state budget special statements
indicating the extent of gender-oriented expenditure should be undertaken.
e. Strengthening Local Governance
Decentralization is generally considered efficiency augmenting. The provision of local
public goods (LPGs) is best handled in a decentralised way. The efficiency advantages of
decentralisation of LPGs are varied and quite significant. The first advantage of
decentralisation is the possibility of having regional specific demands in the mix and level
of local public goods, which can greatly enhance social welfare. Research has indicated
that preference revelation problems encountered in public finance are greatly diminished
as the size and heterogeneity of the population decreases. With decentralisation,
competition, proximity, and transparency provide a strong motivation for local
governments to be more responsive to the desires of the public.
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